Chicago-based Stoltmann Law Offices is representing investors who were solicited by their financial advisors to invest in junk-bonds offered by now bankrupt Hornbeck Offshore. The bonds sold to our clients were rated D by Standard and Poor’s at the time of the solicitation, which is as low as bond ratings go. This was not even speculation, it was financial homicide. The financial advisor at issue in our clients’ cases, Thomas M. Bonik was registered with NTB Financial Corporation (f/k/a Neidiger, Tucker, Bruner), which is headquartered in Colorado and has offices all over the country. Mr. Bonik’s office was primarily in St. Augustine, Florida.
Hornbeck Offshore had been struggling financially for years. The company is primarily engaged in offshore oil drilling and transportation. The persistently low prices for oil and gas for the past few years resulted in Hornbeck struggling financially due to a heavy debt load. Part of that debt was in the form of bonds purchased by investors. Covid was the last straw for this struggling company and in June it filed a pre-packaged Chapter 11 plan in the Bankruptcy Court for the Southern District of Texas. These pre-packaged plans are negotiated in advance with the “Secured” creditors, and typically burn bond holders like our clients. No surprise, our clients have lost every dime they invested in these Hornbeck bonds.
Financial advisors recommend clients invest in corporate or municipal bonds that are technically “junk” rated because these bonds have much higher yields than higher rated bonds. In the persistent low-rate environment in the US and to some degree the worldwide economy has been in since after the financial crisis, investors and advisors alike reach for higher yields, often investing in esoteric alternatives to grab that extra yield. In this instance, the recommendation was to invest in corporate bonds that were rated “D” by S&P, which defines this rating as:
“An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within five business days in the absence of a stated grace period or with the earlier of the stated grace period or thirty calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed debt restructuring.”
There is no reasonable basis for a financial advisor to recommend clients invest in bonds with a “D” rating. Ultimately, it is the responsibility for the financial advisor and the brokerage firm to ensure that all recommendations comport with the suitability obligations set forth in FINRA Rule 2111. Also, the brokerage firm has to reasonably supervise the recommendations made by their brokers pursuant to FINRA Rule 3110. It is certainly one thing to recommend a junk bond rated BB+ (which is “junk”), and several notches lower at “D” which literally means the company or issuer is in default, in bankruptcy already, or in some sort of debt-restructuring. Financial advisors and the firms that employ them can be held liable for this sort of unsuitable activity through the FINRA Arbitration process.
If you invested in Hornbeck bonds and suffered losses as a result, please contact Stoltmann Law Offices at 312-332-4200. We offer representation on a nationwide basis to burned investors on a contingency fee basis, which means we do not get paid until you do!